Alan Kohler is one of Australia’s most experienced business commentators. Alan has been a trusted source of investment advice to Australians for many years, and in 2005 he founded Eureka Report - Australia’s #1 online investment report. Along with Robert Gottliebsen and Stephen Bartholomeusz, Alan also founded Business Spectator, the popular business news and commentary website. Alan is the regular finance presenter on the ABC News and producer of the popular nightly graph (or two).

A glance beyond renewables

Renewables might be the answer to our long-term energy needs, but we need to find a way to reduce CO2 emissions while we are on the way to that long-term goal.

That is the approach taken in the recently released International Energy Agency (IEA) report, Tracking Clean Energy Progress. The authors set themselves an ambitious task:

“Global demand for energy shows no signs of slowing; carbon dioxide emissions keep surging to new records; and political uprisings, natural disasters and volatile energy markets put the security of energy supplies to the test.

“More than ever, the need for a fundamental shift to a cleaner and more reliable energy system is clear. What technologies can make that transition happen? How do they work? And how much will it all cost?”

The IEA was encouraged by the significant annual growth rates for the major new renewables over the past decade, namely onshore wind power (27 per cent), and solar PV (42 per cent). However, these annual growth rates were achieved against a low base, and the IEA considered that maintaining this rate of increase into the future would be challenging.

The IEA believed the development of mature renewables like wind and solar PV was on track, but it was concerned that other areas were lagging seriously behind.

For the IEA report, we can conclude that the failure to implement the necessary changes will hold back the reductions in CO2 emissions that are believed to be necessary.

Somewhat surprisingly, the IEA considered that the greatest untapped potential for emission reductions was through efficiencies and improvements in less exciting fields, such as coal and gas-fired electricity, industrial processes, and vehicle and building efficiency. The report argued that significant enhancements could be made in these areas, and indicated that, if these improvements were undertaken, the planned transition to a low-carbon economy was much more likely to be achieved.

In this article, we will look at one of these: the IEA picture on coal-fired electricity production.

Coal-fired Electricity

Whether we like it not, coal-fired electricity will be the staple of electricity production for some time to come. Its use is continuing to increase on a world-wide basis. The reasons are clear. It is low-cost and the fuel is readily and reliably available. This can be seen in the following IEA chart which shows the relative increases in electricity generating capacity over the period 2000 to 2009.

While the OECD increased both its non-hydro renewable and natural gas output, China has put its efforts into increasing its supply of coal-fired electricity along with increasing its use of hydro-electricity. It is noted that India has not changed much at all, so watch this space – it will be very important.

With so much electricity being generated from coal, the efficiencies associated with the different technologies are critical. This is because a higher efficiency leads to lower emissions. Even the efficiency of the older sub-critical technologies has increased over time. The very best of these technologies is currently running at round 40 per cent efficiency, with the newer supercritical and ultra-supercritical plants running at an average of around 45 per cent. This improvement over time can be seen in the following figure from the IEA report:

A breakthrough could come from the widespread introduction of integrated gasification combined cycle plants (IGCC), although the real breakthrough would be with carbon capture and storage (CCS). IEA expects efficiencies of 50 per cent from IGCC plants, and that could go higher as further improvements are made over time, as has happened in the case of other technologies. It notes that IGCC plants are slightly more expensive to build than the other technologies. A carbon price will help the economics.

Depending on progress with CCS, Australia could take the lead, since it has both the expertise and the natural resources available to be in a good place to make this kind of development.

However, such proposals are highly contentious in Australia. Suggestions like this have been opposed here, mainly because it has been thought that such developments would divert attention from renewables, but it seems unwise to cut off any option without proper consideration. Meanwhile we leave it to China and other OECD countries to do the heavy lifting in improving IGCC technology. The global imbalance can be seen in the following figure, which shows the capacity additions by technology and region.

The IEA argues that policies to halt the deployment of inefficient plants are urgently required. As well as the necessary reduction in emissions that only installing the most efficient plants will generate, it noted that such policies would also slow-down the growth in demand for coal, thereby keeping the cost of electrical energy down for the rapidly developing countries.

Some countries are getting on board. The IEA indicates it is possible that India will mandate that (at least) only supercritical plants be installed from 2017, and China is already calling for the retirement of small, ageing, and inefficient coal plants. On the other hand, it is unlikely that Europe will add much new coal-fired generating capacity, and in the US it is likely that EPA restrictions will mean that gas, and not coal-fired electricity plants will be built.

The question remains, what will Australia do to respond to the world's need for coal-fired electricity to be produced more efficiently? In response we can say that we already have supercritical plants in Callide C, Tarong North, Millmerran and Kogan Creek power stations, which are claimed to run at 40 per cent efficiency, and to require 42 per cent less fuel input than the plants that they replaced.

But this is a small contribution: there are many plants that have not been updated in this way, or replaced. Indeed, we have entirely skipped the ultra-supercritical phase of these developments, and we do not have any IGCC plants.

Based on the IEA report, there seems to be a case for building (and improving) at least one IGCC plant here, as a good international citizen. This proposition would be aided if an appropriate economic case for it could be developed.